Auditor familiarity and audit quality in business groups
By Sairam Moturi, Vijaya Marisetty, Sanjay Kallapur
Citation
Moturi, Sairam., Marisetty, Vijaya., Kallapur, Sanjay. (2024). Auditor familiarity and audit quality in business groups .
Copyright
2024
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Abstract
Understanding the motive for extended auditor tenure is difficult as it is simultaneously determined by auditor familiarity and the corresponding switching costs to the firm. We attempt to disentangle this by exploring the motive of auditor tenure in business groups, where auditor familiarity can be extended by transferring the auditor to another affiliated business group firms, with no impact on the switching costs. Using 8363 firm-year observations for the period 2003 to 2019 of Indian business group firms. After controlling for non-audit services and auditor tenure, we show that an increase in auditor concentration, that measures extended auditor tenure, reduces audit quality. We find that even mandatory auditor rotation law is not effective in improving audit quality as business groups reshuffle their auditor portfolio to reappoint existing auditors in other business group affiliated firms. Further, we find that business groups that extend the auditor tenure through reappointments engage in higher intra-group transactions and have poorer audit quality.

Sanjay Kallapur is a Professor of Accounting at the Indian School of Business (ISB). He joined ISB in 2005 from the Krannert School of Management, Purdue University, where he was a tenured Associate Professor.

Professor Kallapur conducts research on financial and managerial accounting, auditing, corporate governance, and risk management. He has published in each of the top three accounting journals, and his papers have been cited over 4,000 times (Google Scholar) and in regulatory policy documents in India and the UK. The American Accounting Association recently published his monograph on scientific inference in accounting research, beyond the use of p-values.

He is the founding Editor-in-Chief of Accounting Theory and Practice, a research journal focusing on India, published by Elsevier. He has been an editor of The Accounting Review from 2008 to 2011, the first person from outside North America to be appointed to that position.

Professor Kallapur is a member of National Financial Reporting Authority (NFRA), the regulatory body overseeing the accounting and auditing of listed companies in India. He is an independent director on the Board of IDBI Bank, where he serves on the risk management and audit committees. He previously served on the Board of the Life Insurance Corporation of India.

Professor Kallapur has held positions as Associate Dean and Deputy Dean for almost a decade at ISB. He started the PhD-equivalent Fellow Programme in Management at ISB and has placed his students in faculty positions at the London School of Economics, IESEG Paris, Aalto University, University of Queensland, University of Western Australia, and IIM Udaipur.

Professor Kallapur has a PhD in Business Economics from Harvard Business School, and B.Com. and M.M.S. degrees from Mumbai University. He is professionally qualified as a Fellow Member of the Institute of Cost Accountants of India (FCMA).

Sanjay Kallapur
Sanjay Kallapur